Saturday, January 31, 2015

My view is that there are many explanations for the weakness in oil, including some theories that Saudi Arabia wanted to weaken Russia or the shale oil production in the US or Iran, and so forth. But my view is that the decline and sharp decline in oil prices signals a weakening global economy.

Now, in the last few days, I received many reports by brokerage firms and banks, and so forth. They all think that next year the economy in the world will be stronger than in 2014. This would not be my view. Reason A, the low yields on government bonds, that would seem to suggest to me that there are still some growth issues in the global economy, and the sharp fall in the industrial commodity prices would also suggest to me that the economy will be weaker than expected.

And I live in Asia. I can say that we’re not in a recession or in a deep recession, but there’s very little growth at the present time. In fact, I would argue that there’s hardly any growth at all. And as far as Russian oil stocks are concerned, and I think the oil price can rebound here short-term, but you might as well buy some oil drillers in the United States or oil servicing firms or oil companies. Why take a huge risk in Russian oil companies?

Wednesday, January 28, 2015

If the US buys its own bonds, then because of the status of being a reserve currency, they basically buy their own currency. If foreign governments would start to ease massively, then I suppose the currencies would weaken.

Now, you may say, “Well, why did the dollar strengthen amidst the fact that the US has printed money?” Well, there are some reasons. First of all, maybe the US dollar is not the ugliest among the several sisters, and two, because of the increase in oil production in the United States, the trade deficit has narrowed, and so the dollar can be strong for a while. I don’t think it will last, but the consensus is that the dollar is the strongest currency around. And these other countries, say if Thailand or Singapore or Indonesia would start to print money, then they would weaken their currencies, or that would be the perception.

Sunday, January 25, 2015

Faber has consistently warned since the late 1990’s that this dynamic would come to pass as the West and the U.S. in particular exported its industrial infrastructure and binged on consumer junk fuelled by easy credit while the emerging economies of east Asia used the proceeds to focus on production rather than consumption to become industrial powerhouses.

He went on to say,

“In the countries that opened up post breakdown of the socialist/communist ideology – China, Soviet Union, Eastern Europe - and India of course we have an entire generation who will earn much more and will have a better standard of living than their parents had.”

He highlighted certain factors that are leading to this lower standard of living for young western people. Banks now generally charge more to hold one’s money than the interest they pay out. He cites the yields on Swiss ten year bonds at 0.46% as an example of how people, and especially young people, are disadvantaged relative to previous generations.

“These people will not enjoy the compounding impact that I enjoyed having started to work in 1970 when bond yields were 6% and they went to 15% and so forth. So during that period of time wealth was accumulating very rapidly plus we had a huge boom in real estate and in equities and bonds between 1980 and 2007.”

“That is not going to happen again.”

Agricultural commodities including palm oil and Asian companies processing agricultural produce is where Dr. Faber currently sees value. Some of these companies in Malaysia and India, for example, pay dividends between 2% and 4%.

The young people who invest in these types of company will see their wealth steadily rise as opposed to their western counterparts who rely on the casino of rising paper asset prices.

Faber also likes the stock market in India and thinks it could see gains of 15% next year. The new government is free market and enterprise friendly and Faber believes the central bank in India is the “world’s best central bank.”

Dr. Faber is a long time proponent of owning physical gold. He has consistently urged people to act as their own central bank in acquiring bullion coins and bars as financial security and he believes that storing gold in Singapore is the safest way to own gold today.

Thursday, January 22, 2015

“I meant that with respect to western societies and Japan where essentially the younger people – today’s generation – will earn less than their parents and they will have less wealth than their parents, inflation adjusted.

This is because we will have wealth taxes, we will have more estate taxes and we have essentially declining real median incomes in the western world and Japan.”